Consumer Confidence Dips, Durable Goods Orders Rise
In response to the mixed economic indicators, the stock market bounced in and out of positive territory Tuesday morning before starting a steady decline in early afternoon. Despite a light trading volume, the Dow down 87 points and the NASDAQ down 36 by 3pm Eastern Time.
According to the Commerce Department report, shipments and orders for costly manufactured items, so-called durable goods, increased $14.4 billion or 8.7 percent in July following a 4.5 percent decline in June. The July jump is the largest for the durable goods indicator since October.
Orders increased in almost every category tracked including a 20.8 percent increase in transportation equipment orders and a 13.9 percent jump for new computers. The overall reading was a surprise to analysts who had predicted a more modest increase of between 1.4 and 2.7 percent.
Despite the good economic news for U.S. manufacturers, another report released Tuesday indicated consumers may be wary of spending in the month ahead as the Consumer Confidence Index fell for the third month in a row.
The Conference Board’s Confidence Index dipped to 93.5 for August, from 97.4 in July. The private research group compiles the index through surveys of a representative sample of 5,000 U.S. households.
“The Consumer Confidence Index is now at its lowest level since November 2001,” Lynn Franco, Director of the Conference Board’s Consumer Research Center, said. “It also suggests that consumer spending is not likely to gain momentum any time soon.”
Analysts and economists look to the Consumer Confidence Index as an indicator of consumer behavior, whose spending represents some two-thirds of all economic activity. The August reading was much lower than the 97 many analysts were forecasting.
Federal Reserve Chairman Alan Greenspan has warned against using consumer confidence to predict consumer spending. For its part, the Federal Reserve has held short-term interest rates steady in 2002, hoping to both motivate consumers and entice business to spend and hire new workers.
In other economic news, the Congressional Budget Office (CBO) said Monday that reduced tax collection, higher spending and a weaker economy all indicate federal budget deficits will persist for the next four years. The CBO reported the government will only pull out of deficit spending if tax cuts enacted last year expire in 2010 as planned and if there are no other significant increases in spending.
The report predicted a budget deficit for this fiscal year of some $157 billion stemming from “a sharp decline in tax revenues coupled with double digit growth in spending.”